Uber’s $100M Settlement Rejected, Contractor Debate Could Go to Trial

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A judge’s rejection of a settlement between Uber and hundreds of thousands of drivers in California and Massachusetts reopens the possibility that a jury might decide a question at the core of the ride-hailing app juggernaut’s business model—whether drivers should be classified as employees or independent contractors.

Uber agreed in April to pay up to $100 million to settle the two class-action lawsuits, a deal that would’ve allowed it to continue classifying drivers in California and Massachusetts as contractors. That classification helps Uber maintain its low-cost business model. As part of the settlement, Uber also was to adopt policy changes that make it somewhat harder to deactivate drivers, and would have helped fund and met regularly with union-like associations of drivers in both states.

But Judge Edward Chen of Northern California’s U.S. District Court denied that proposed—and controversial—settlement on Thursday. In his written order, Chen acknowledged the settlement’s “sizeable” monetary award and policy changes, as well as the risk drivers face in pursuing the litigation. But overall, he deemed the settlement was not “fair, adequate, and reasonable.”

His main concern involved the proposed resolution of drivers’ claim related to the Private Attorneys General Act (PAGA), a section of California’s labor code. If drivers prevail on that claim, the penalty against Uber could exceed an estimated $1 billion, Chen wrote. But the drivers proposed settling those claims for just $1 million, or 0.1 percent of the potential award. Chen doesn’t think either side adequately justified settling those claims for “such a relatively meager value.”

And even when considering all the claims combined, the settlement still represents less than 5 percent of the total potential payout to drivers—an estimated $1.85 billion, Chen noted. (His analysis only accounted for the settlement’s base guaranteed payment of $84 million. An additional $16 million would be paid if Uber went public or got acquired at a certain valuation, but “there is no information on the likelihood that this contingency will be triggered,” the judge wrote.)

Uber is “disappointed” in the judge’s decision and is weighing its options, according to a company statement quoted in mediareports.

Shannon Liss-Riordan, the Boston attorney representing drivers in the cases, also expressed disappointment.

“In light of this order, we will have to see what happens next,” she said in an e-mail to Xconomy. “It is possible the parties could reach a revised agreement that satisfies the court’s concerns regarding the PAGA claims. But if not, as I’ve said before, I will take the case to trial and fight my hardest for the Uber drivers.”

If a revised settlement can’t be reached, Liss-Riordan said it seems likely that the scope of the class-action group might shrink significantly—to just 8,000 drivers—if the courts uphold Uber arbitration contracts that have been challenged.

“That means that drivers who did not opt out of Uber’s arbitration clause would need to bring individual claims in arbitration if they want to be a part of this,” Liss-Riordan said in the e-mail. “We are prepared to start bringing these claims individually, and more than 1,000 drivers have already signed up with us to bring individual claims in arbitration if that becomes necessary, so other drivers who want to be included would need to contact us.”

Liss-Riordan had been criticized for the size of the boon she would get from the settlement. She later agreed to reduce her cut of the payout by $10 million, meaning she would’ve earned $11 million, or $15 million if the now-rejected settlement reached the $100 million maximum.